President Donald Trump and Ayatollah Ali Khamenei appear to be steamrolling toward an open confrontation, and oil prices are spiking accordingly.
Brent Crude futures were up about 3% as of mid-day Wednesday, trading at just over $70 per barrel.
After falling yesterday when it appeared Iranian and U.S. negotiators were close to reaching an agreement, the world woke up to news on Wednesday that American forces are steadily deploying to the Middle East following Iran’s closure of the Strait of Hormuz, a key shipping lane between the vast oilfields of the Arabian Peninsula and the rest of the world.
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That, and other geopolitical price shocks: Talks between Russia and Ukraine collapsed in Geneva on Tuesday, further spiking prices. But, it’s still a tug-of-war between, well, the threat of war, and a broad supply glut that — thanks to revived Venezuelan production — had crude prices tumbling over the last few weeks. Thanks to that, and a little jolt from Guyana, the The International Energy Agency (IEA) is forecasting a 3.7 to 4 million barrel per day (mb/d) surplus, which likely explains why Brent Crude prices are hovering just under $70 and not breaking $120.
But there is more friction to come. The Trump Administration also levied 25% secondary tariffs on countries doing business with Iran, further isolating the embattled regime as it deals with protests. And traders will keep pricing in a war premium as long as Russian President Vladimir Putin believes there’s still a path to victory.
It remains to be seen whether President Trump and the Ayatollah’s war of words leads to open confrontation, or is just two angry old men engaging in some unfriendly brinksmanship. Either way, traders will be watching prices accordingly.
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